U.S. durable-goods orders flat in October

Bookings for autos, aircraft and defense soften; Sandy effect ‘nil’

WASHINGTON (MarketWatch) — Bookings for U.S. durable goods leveled off in October, mainly because of slack demand for automobiles and airplanes and a reversal in defense orders.

Most other manufacturers saw an uptick in demand, however, in a sign that conditions aren’t getting any worse in an already-soft segment of the U.S. economy.

Overall orders for durable goods were virtually flat in October, the Commerce Department said Tuesday. Economists polled by MarketWatch had expected a 0.4% decline.

Yet factoring out the volatile defense and transportation industries, so-called core capital orders jumped 1.7% last month to mark the strongest gain since May, according to Commerce Department data. That category gives a better idea of how much the broader U.S. manufacturing sector is investing in equipment, a major source of economic growth.

“The good news is, at least for the time being, worst-case scenarios ahead of the ‘fiscal cliff’ are being avoided,” said Neil Dutta, head of economics at Renaissance Macro Research. “Companies are cautious but are not panicking.”

Still, core orders for the first 10 months of 2012 were unchanged compared to a year earlier, reflecting the pervasive softness in demand faced by domestic manufacturers. A slower U.S. economy and weakness in key export markets such as Europe and China have caused orders to wane.

Durable goods are items such as cars, computers or heavy machinery expected to last at least three years. A sort of economic canary in the coal mine, orders spike when U.S. growth accelerates and soften when a slowdown ensues.

The latest report suggests continued caution on the part of business toward the end of the year. Companies are worried about the threat of a U.S. budget crisis in early 2013, when deep spending cuts and higher taxes would kick in unless Congress and the White House avert a so-called fiscal cliff.

A recent report by the investment bank Credit Suisse indicates that as many as 30% of U.S. companies are delaying some projects until Washington resolves the looming crisis.

Yet the effects of Hurricane Sandy late in October were “virtually nil,” a Commerce official said. The Northeast, which bore the brunt of the deadly storm, has less heavy industry than other regions of the country.

On Wall Street, investors reacted to the durables data among a handful of reports on the U.S. economy. Stock prices gave ground, with the Dow Jones Industrial Average
DJIA, -0.05%
lately off 0.4%. Read more in Market Snapshot.

Strong and weak points in durables data

The biggest declines in orders last month occurred in defense and transportation, two categories whose bookings can whipsaw from month to month.

Orders for autos and parts dropped 1.6% and bookings for commercial aircraft fell 5.8% last month after soaring in September.

Excluding transportation, new orders rose a modest 1.5% in October on the heels of a 1.7% increase in the prior month.

Areas of strength in October included primary metals, machinery and electrical equipment.

Primary metals, often a good indicator of future demand, rose 1.7% and posted a second straight gain. Machinery orders rose 2.9% and bookings for electrical equipment moved up 4.1%.

Shipments of durable goods fell 0.6% in October. Shipments of core capital goods, a number used to help determine quarterly growth, dropped 0.4%. These shipments have fallen four straight months.

Inventories increased 0.4% and unfilled orders rose 0.2% in October.

Orders for September were revised to a 9.2% gain from an initial report of a 9.9% increase.

The durables report is often volatile and subject to sharp revisions, so economists pay more attention to longer-term trends. Orders have risen 4.9% in the first 10 months of 2012, but they are down 5.1% as measured over the past three months, the government’s data indicated.

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